Cubans Hoping Oil Search Pays Off

July 29, 2004|By Gary Marx Chicago Tribune

HAVANA — Eighteen miles off Cuba's northern coast, a Spanish company is in the early stages of oil exploration that could alter Cuba's economic fortunes and increase pressure to ease U.S. trade sanctions against the government.

Battered by high oil prices and starved of hard currency, the Cuban economy has been on life support for years as it struggles to meet its energy needs and manage the Bush administration's intensified efforts to isolate the communist government.

But experts say a major oil discovery could provide a huge lift by making Cuba energy self-sufficient and even a potential oil exporter, though few doubt it would lead to widespread internal economic reforms.

Neither Cuba nor Repsol YPF, the petrochemical giant conducting the exploration, have said much about the project since drilling began in June. Preliminary results could be announced next week.

"These are high-risk areas, but we are optimistic," Alfonso Cortina, Repsol's chief executive, said in March. The company is spending $195,000 a day to lease a Norwegian platform that is prospecting a mile below the water's surface.

While the Gulf of Mexico has been a major source of crude oil for decades, experts said it is impossible to predict whether Repsol will come up dry or discover enough high-quality light crude to justify investing the more than $1 billion needed to develop a major field.

Repsol's strip in the Gulf never has been drilled. Previous offshore exploration efforts near Cuba have turned up little, though the technology for finding deep-water oil deposits has advanced significantly in recent years.

The deep-water wells closest to Cuba are about 400 miles away. Even if oil is found, it could take three years or more before production begins.

"Deep-water provinces around the world are a new frontier in the last decade," said Michael Rodgers, senior director at PFC Energy, a Washington, D.C.-based energy consulting firm. "But anytime a company goes into a new frontier, there is more risk associated with this."

Ernie Lalonde, a vice president at the Canadian company Sherritt International, said his company also signed a deep-water exploration contract with Cuba in 2002 and began seismic studies in a 2 million-acre tract bordering the Repsol area.

Lalonde called the chances of finding a major deposit in untested waters a "long shot." Still, he is optimistic and eagerly awaiting Repsol's results.

"This is a big-dollar game," Lalonde said. "You are talking in terms of millions of dollars for one well."

Sherritt and a second Canadian company stepped in to help Cuba after the fall of the Soviet Union ended huge economic subsidies that included cheap, plentiful oil.

The Soviet collapse devastated Cuba's economy, leading to fuel shortages, power outages and forced officials to open Cuba's oil industry.